Savvy Strategies for Starting Your Emergency Fund
When the unexpected happens, can your finances weather the storm? If you have built up an emergency savings fund, the answer is yes.
Saving money may not always be the easiest thing to do, especially when it sounds a lot more fun to take a vacation or indulge in something nice for yourself. But setting aside enough money to pay your expenses for three to six months is more than just financially sound — it’s good for your peace of mind.
Financial emergencies such as losing your job, paying surprise medical bills, fixing your car, having unexpected home expenses or traveling for a family issue can cause a lot of stress and may impact your ability to pay your bills. Having a cushion lets you deal with these issues without turning to credit cards or borrowing money.
Saving is easier when you have a budget, so that’s a good place to start. Tally up how much you make a month and how much your expenses are. Financial experts recommend putting 20 percent of your monthly income towards savings or paying off high-interest debt like credit cards.
Multiply your monthly expenses by six — that’s how much you need to stock your emergency fund. Don’t let the number scare you. It’s possible to get there, even if you have a tight budget. Just start small.
Ways to Save
Setting up an automatic deposit to a savings account can help keep you from spending money that you mean to save. This works just like an automatic deduction for a retirement plan.
Since this money is just for emergencies, make it hard to get to. Open a separate savings account to keep this money out of sight, and don’t link it to a debit card.
If you can’t commit to pulling funds from your paycheck, try switching to cash and saving your change for the emergency pot. At the end of each month, deposit your change into the savings account. Those nickels, dimes and pennies can really add up.
Still having trouble finding money to put away? Try eating more meals at home and cutting back on expenses such as premium cable channels, magazine subscriptions you aren’t using or that dusty gym membership.
Think of your emergency fund deposit as a bill and add it to your monthly budget. Make deposits on the same day each month so you won’t forget. And any time you get a large amount of money, like a tax return or annual bonus, put it in this fund immediately.
The sooner you reach your emergency fund goal, the sooner you can feel secure and ready to handle anything that comes your way.
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